After finals week I bet you can use a simple test question. The following question comes from the American Council on Education GED website. Please carefully read the question and answer appropriately based on the wording of the question.
5. Byron purchased a $5000 certificate of deposit (CD) at his local bank. The CD will pay him 7% simple interest at the end of 2 years. How much INTEREST, in dollars, will Byron have earned from his CD at the end of the 2-year period?
Select which of the following alternate-format answers is correct.
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Joined: Fri 09-05-2003 10:24AM Posts: 3589 Location: Oklahoma! Where the wind comes sweeping down the p l a i n s !
Source: Fidelity
[spoiler]That is terrible. You'd think that proofreaders would catch that kind of ambiguity. I understood the question to ask what the total interest would be if over the course of 2 years, the interest gained equaled 7%. This ambiguity could have easily been cleared up with the addition of only one word: annually. The question writer assumes that the person taking the test will assume that the interest percentage is annual while never explicitly stating it. There is no hope for the quitters of this country.[/spoiler]
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[spoiler]Yeah, that's a poorly worded question. Normally I would assume that's 7% annually, because interest is almost always an annual rate, whether it's a CD, bank account, loan or credit card, but that question seems to clearly state that after 2 years, he will have earned 7% interest. If the question said "Byron purchased a $5000 CD with an interest rate of 7%. The CD will pay interest at the end of 2 years" I would've thought it was 7% annually, thus, 14% after two years, but that question very clearly implies it's 7% after 2 years.[/spoiler]
Joined: Sat 10-18-2003 10:26PM Posts: 2954 Location: Stone's throw from Garden of the Gods, Colorado Springs
Source: Off Campus
[spoiler]I got $700. Ok. But what bank pays simple interest? CDs are usually quoted as an APR compounded quarterly. But I understand exponents are an Algebra II concept.
Yes, I see the glaring error. But I automatically took it to be annual interest. Why? Cause it's the ------- GED. They don't put trick questions on the GED. (And BTW, I tutor for the GED.) I just got done with our Financial Math class here on campus, and I'm used to interest being quoted yearly there too. And I'm studying for the Financial Math Actuarial exam, and wouldn't you know, the SOA quotes interest yearly as well.
I agree, though, they should tighten their language up.[/spoiler]
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